Does Crude Oil Signal a Mood for War?

The news can be a part of the story that goes along with where the market was already heading, but it's the mood or sentiment that is the cause.  I've noticed over the years that when crude is pointing up and the market is pointing down (per the mood generated forecast) that this is usually accompanied by Middle East geopolitical escalation.  That's why I said in Sunday's report (at Elliottwavetrader.net), "The {crude} chart implies at least the potential of a large bullish turnaround. Gearing up for some Iran/Syria news, maybe?"  There were already tensions when I posted that, but as long as I've been watching this, it appears that crude always goes up first before military action is taken (in the Middle East).  This is the Socionomic premise: mood => markets => news.

We like to have a reason why to explain what is happening in the markets.  If there is a final spike in crude and sharp drop in the stock market, perhaps it will be blamed on concerns about WWIII.  Yet, Avi Gilbert of Elliottwave.net was posting months ago about a 4th wave that would look like a scary crash.  Was he psychic?  It's simply that it's the pattern of things.

Elliott Wave Theory can tell you that at some point soon a large, sharp bearish move is likely.  These stock market patterns are displays of the general shape of our collective ups and downs.  At some point prior to major news or the next big market move, it will start to show up in what we are collectively focusing on, e.g. internet search trends.  The MarketMood model uses an algorithm to convert this into market movement for the stock market, gold, oil, and the U.S. Dollar.  The market will then reflect the social mood in how it moves, and finally, the news will conveniently provide a background story to give us a reason why (because we like to point to something "out there" as to why these things are happening).  Yet, wars will happen, it seems, only when the mood is right.

Market moves, mass casualty events, epidemics, and even natural disasters appear to follow the mood, not precede it.  I don't know that it can be stated unequivocally that our mood causes all of these things.  However, it does seem to precede them.  Socionomics, Elliott Waves, and the MarketMood model, are all based on this premise.  Social mood follows general patterns, which can be traced in the market.  Certain types of news are associated with specific mood patterns and Elliott Waves.  News doesn't cause any of it, it's just part of the background story that we point to "out there" to explain what was already in progress.  This is not how we are accustomed to thinking about our world, but it has been demonstrated over and over again, that this is indeed the way of it.  If you want to make news the cause of it, then perhaps you could say, "A possible war we don't know about yet, will cause crude oil to rise next week, and is causing us to focus on things today that resonate with that on the internet."  If that sounds a bit silly, then just stop saying the news is causing the market to move, or the future news and market moves are causing what we are thinking about or caring about today.  That would be a start.

This Week: Hope and Thanksgiving

This is an excerpt from my weekly market outlook post at ElliottWaveTrader.net:

For the week ahead, there is little in the mood pattern in the way of bearishness.  The mood pattern combines a "rose colored glasses" component in which news or data will be seen in the most positive light possible, and a "denial" component which will facilitate brushing off any bad news.  Perhaps people are wanting to keep a hopeful outlook as the holidays approach (U.S. Thanksgiving).

The main take away from the weekly forecast charts (at Elliottwavetrader.net) is that the market continues to be seriously overbought.  The extent of the divergence is beginning to be concerning.  When this "rubber band" snaps, it will not be pretty.

Qualitative Analysis Notes:  This week's identified social mood components: 1) Low Manic/Vulnerable (with inversion) => "Rose colored glasses;" seeing news in a positive light. 2) High Expansive/Controlled (with inversion) => denial, delusion.

  

Stock Market at Major Top

You have already decided that the stock market is making a major top now.  Actually, we collectively decided this when we voted about what mattered most to us.  I'm not talking about an election.  Our choices are reflected in what we most searched for on the internet... a few months ago.
Research that spans two decades has shown that daily internet search trends are reflected in the markets a few days later and weekly search trends a few weeks later.  What was important to us on a quarterly scale, well, that will show up a few quarters later.

The source data for the fourth quarter of 2017 comes from internet search trends in the first quarter.  There were many events in the news, including the Inauguration of President Trump.  However, what matters for this purpose is what we focused on the most, not what the news media thought was important.  What we cared about, as judged by our search trends includes Melania Trump, the New Year, the Oscars, the Grammy Awards, St. Patrick's Day, the Spring Equinox, the lunar or Chinese New Year, Alabama vs. Clemson, the discovery of an exoplanet, and the death of Bill Paxton.  While none of this is directly about the market, it reflects cycles of sentiment and social mood, and this is, or soon will be reflected in the markets.

The top trends for the period under review is first converted to themes.  For example, Alabama vs. Clemson can be seen as men, sports, and schools.  After all of our trends are converted to themes they are converted to four primary mood qualities which change over time.  This is shown in the chart below:



When the purple line (Expansive) is on top, and the pink line (Vulnerable) is on the bottom, and the two are moving away from each other, that is bullish.  It reflects the very essence of "bull market."  When these lines start coming back together, it reflects a decline within a bull market.  It is clear from this, that there is a top occurring or about to occur somewhere in Q4 of 2017.

From that point it begins to get complicated.  Every so often the signals "flip," and what was positive becomes negative and vice versa.  One of these should be occurring around Q1 of 2018.  Exactly when this happens will make all the difference in the world.

No matter which way the signal is oriented, Q1 is not likely to be a pleasant period for many.  If it is oriented one way, it points to a background of international issues, people feeling extremely vulnerable or risk averse, and the government trying to prop things up.  If it is oriented the other way, it points to the primary focus being either international issues or the president (or both), a background of victims or people feeling attacked, and things in general appearing to deteriorate.  However, most of the effects of this normal or inverted mood signal in the markets should primarily be seen in Q2.
The charts below illustrate an estimated market track (dashed blue line) using the MarketMood quarterly S&P forecast as a guide.

Base case (signal flip by end of Q4 2017):


Alt case (signal flip after Q1 of 2018):


Needless to say, for the sake of the economic stability and social well-being of our world, I definitely prefer the Base Case.  Even better, that scenario is the most probable one.

At MarketMood.net, we take internet search trends and convert them to daily and weekly forecasts in the stock market, crude oil, gold, and U.S. Dollar   These are presented and discussed in our live trading room.  You are welcome to come check it out!

Heralding Change: August 2017

A stock market rally that won’t stop for anything has been the status quo since February 2016.  There have been geopolitical uncertainties, election surprises, and political confusion, but the market has barely given a shrug to any of it.  The month of August should at least give it pause, and may herald a change of trend that brings the market down… at least for a few months.  Looking within patterns of social mood and translating that into likely market behavior, one can see that August is heralding a message: Something new this way cometh.

Research spanning two decades has shown that what we collectively focus on, as seen in the top internet search trends will show up in market movement and news events soon afterwards.  Daily search trends are shown to be related to market movement three days later, whereas weekly trends are related to market ups and downs about three weeks later, and monthly search trends appear to show up as market movement and often in news events about three months later.

The source data for August’s projections comes from May 2017 top trends.  Imagine taking the mood that accompanies Mother’s Day, the Manchester terrorist attack at an Ariana Grande concert, Chris Cornell’s suicide, and the death of the American TV personality, Christopher Boykin and somehow adding them together.   Other than Mother’s Day, they don’t sound like they would make a pleasant cocktail.  However, it’s not always that straightforward.

In order to combine these, they are first broken down into themes.  Mother’s Day becomes woman, family, honor, and calendar.  The fatal concert becomes woman, music, international, terrorist, explosion, death, and injury.  After breaking the other search terms down into themes, these are translated into an archetypal “language” of 8 words or categories which allows the terms to be added together.  The final results are entered into an algorithm called the MarketMood Indicator (MMI) which gives the expected market change in August from the May source data.

The general mood conveyed by these terms together is one of strong emotions, and often panic.  Yet, there is added complexity for this particular month.  Every so often the mood and its effects become inverted.  This inverted condition has been the case for many months.  It just so happens that in August, this inversion is expected to “flip.”  Before August even began, our analysis showed that at some point during the month, an overall social mood of denial in spite of facts (this is the flip expression of the panic pattern), should flip to something much more intense.  This would make it a month where people who have been in denial about a problem are suddenly faced with it loudly, brightly, and undeniably.  If this flip is more gradual throughout the month, both large short covering rallies and sharp sell offs are possible as buyers and sellers deal with a background of strong, shifting emotions.

To see how the August mood is distributed geographically in the U.S., see our latest United States MoodMap, Is August Panic Time for the United States?

The chart below is the output of the monthly stock market MMI.  The mood generated forecast line which has been in a steady climb since early 2016, can be seen at the right of the chart to be doing something different than it has been for so long.  While the stock market may take a slightly different shape from what is shown here, we can now observe a July-September "double top" in sentiment followed by an October “lower low.”  This is the first lower low to show up in the entirety of this monthly chart which goes back to March 2016.  The month of August 2017 should bring the initial jolts that allow such a long, powerful, and steady uptrend to pause and decline, at least for a few months.


Chart: Monthly MarketMood Indicator vs S&P 500.

The month of August is likely to be unusually full of emotional ups and downs. There have been many news stories of late that can be considered irrational, but this month may mark unexpected new extremes.   The mood pattern for the month of August taken as a whole, suggests a theme of strong emotions, irrational decisions, delusion, and even panic.  The stock market should reflect this background context, and make linear, “rational” or fundamentals based trading nearly impossible to succeed at—in other words, the market movements may make little sense to any reasonable person.  Most importantly, August is heralding a change from the status quo.  While it may not mark the final top of this long rally, as has already been seen after the first week and a half, it should be a jolt to the market, and wake up the sleeping VIX, at least for a moment.

However, just when everyone is assured that things are as bad as they can get, people may be surprised to learn that it’s not the end of the world after all.  Recall the market forecast chart above.  When August’s emotional roller coaster has finished its task, the market will rise again, and the VIX will fall.  This stubborn bull market will not roll over and die without a heck of a fight, and from the mood generated forecast chart, it doesn’t appear quite ready to stop fighting.

At MarketMood.net, daily search trends are converted to expectations of market movement in the S&P 500, gold, crude oil, and the U.S. dollar.  We issue daily and weekly reports, and discuss trade possibilities in our live trading room.

Is August Panic Time for the United States?

According to the pattern of top internet search trends in the United States, August 2017 may be “Panic Time.”  Over ten years of research shows that there is a direct and quantifiable relationship between social mood and the movement of stock and commodities markets in the near future.  Further, information from top search trends can be extracted to give us a “snapshot” of the types of news events and general societal mood to expect at a near future period (as well as market information).  The overall “mood” conveyed by news events and markets in the United States in the month of August could be quite intense and is likely to reflect irrational decisions, strong emotions, and possibly, at times, even panic.   The apparent stimulus for this emotional month may be events taking place outside of the U.S. or situations within the country.

To look at how different areas of the United States are doing relative to each other, we analyzed search trends from around the country geographically.  The map below gives us a picture of the anticipated distribution of mood patterns for the month of August.  The Northwestern U.S. is highlighted as more “emotional” than the rest of the country.  There’s an uncertain something shown off the South Florida coast (or related to Cuba?).  We’ll have to wait and see if this corresponds to anything.  The most significant mood configuration appears to be the area marked as “disruptive” in the Northeastern U.S.  This pattern can reflect social upheaval (unrest, protests, etc).  However, it also shows up in connection with an increase in terrorist activity.  With the center of this area being near NYC, it could also imply market disruption.

 

This map is not a map of future certainties.  It is a map that shows regions more prone to crises, or at higher risk for “newsworthy” events during the month of August than a "background normal."   Similar to the technology that converts internet trends to “future maps,” daily hot search trends are converted to expected changes in the stock market, crude oil, gold, and the U.S. dollar at MarketMood.net.  We publish daily and weekly forecasts, and discuss trade ideas in our live trading room.  A 15 day free trial is available to check us out.  Hope to see you there!

An Emotional Roller Coaster: April 1-7, 2017

What an interesting week in store for us!  A week where emotions rule-- irrelevant facts and reason are on the back burner;  fear, passion, hope and faith are in the driver’s set.   How do we know this?  Because you Googled it!

For over a decade of doing research connecting changes in social mood with events in the world and changes in the markets, it’s been found that the “mood” of what we collectively pay attention to on a daily basis shows up in some form a few days later.  Likewise, on a weekly basis, the mood reflected in what we are searching for most on the internet, shows up a few weeks later.  From this foundation, we can get a glimpse of the ambiance of the week ahead, the types of news stories, and what to expect in the markets, all from what we were looking at most intently a few weeks ago.
To start with, we can get a lot of information just from the top two trends from this week’s source data.  They are “Holi Festival” and “St. Patrick’s Day.”  The first is a Hindu festival that reflects the conquest of good over evil and the healing power of love.  The second is named for a Catholic saint, and is in effect a celebration of Ireland and Irish culture.  They both have religious roots and they both originate or are about places outside of the United States.  They both reflect a sense of community and celebration.  Interesting!

On the face of it, it would seem to be a fairly upbeat week.  A week of hope and celebration.  Yet it’s not that simple.  Perhaps to keep us on our toes, every so often the source mood and the effect we see a few weeks later “flips.”  What may have been fear becomes hope; what may have been optimism shows up as anxiety.  It just so happens that this coming week is a flip week.  Sometime during the week ahead, this “flip” should come about.  That is when the emotional roller coaster should really kick in!

To further analyze our mood data for the week, we break the search trends down into themes and then translate that into what we call the four primary mood qualities: Vulnerable, Expansive, Manic, and Controlled.  For example, the themes I came up with for these two top search trends are religion, international, activity, love, green, and celebration.  The picture below illustrates how that looks as a “MoodCompass” of the four primary mood qualities:



You can see that Expansive and Controlled on the left or “West” side of this picture are much bigger than Vulnerable and Manic on the right or “East” side.  This is made even clearer by the inner circle.  The blue part shows the total of the two West mood qualities which are associated with emotions or the non-rational.  The yellow part shows the total of the two East mood qualities which are associated with facts, data and reason.  When comparing the blue part of the inner circle with the yellow part, it’s easy to see that this week is ruled by emotions (e.g. passion, fear, hope and belief), and that reason (e.g. facts, data, objectivity) will not be the primary driver of decisions or behavior.

So, it’s likely to be an intense week, and it’s likely to be full of emotional ups as well as downs.  We can look forward to irrationality starring in the news, for events and actions to make less “sense” than usual, and for markets to participate with ambiguity and possibly large swings in either direction as traders try to make sense of an especially irrational moment.

At MarketMood.net, we explore this information further by translating the four mood qualities into expected point changes in the stock market, crude oil, gold, and the U.S. Dollar on a daily basis, and discuss this in our live traders’ room.  You’re welcome to come check it out!

Tomorrow's Stock Market from Today's Search Trends (video)

How do you take today's internet search trends and translate that into stock market changes 3 days ahead of time?  Here's Dr. Cari Bourette's explanation given at the NY Traders Expo 2017 (following an introduction of sentiment based trading by Elliott Wave Trader's Avi Gilbert).